European regulators have confirmed that they are investigating the online advertising deal brokered between Google and Yahoo, following similar moves by the US department of justice.

Under the terms of the deal, which was announced in June, Google will be able to sell advertising on its rival's website in return for a share of the profits. That prospect has angered both rivals and customers of the two companies, who believe that the terms of the agreement could hand too much power over to the increasingly dominant Google.

A spokesman for EU competition commissioner Neelie Kroes said yesterday that an inquiry into the $800m (£445m) agreement between the two Silicon Valley giants had been launched over the summer.

"In mid-July we decided to open a preliminary investigation on our own initiative into potential effects of the Google-Yahoo agreement on competition in the European Economic Area," Jonathan Todd told Reuters, adding that there was no deadline for the investigation to conclude.

Sandy Litvack, a well-known lawyer who headed up the US government's antitrust team under Jimmy Carter and more recently sat on the board of Disney, has been brought in to advise a team examining allegations that the arrangement is anti-competitive.

The appointment of Litvack - a renowned 72-year-old trustbuster - is an "ominous sign" for Google and Yahoo, according to one prominent antitrust lawyer who spoke to Guardian.co.uk.

David Turetsky, a former US deputy assistant attorney general who specialised in antitrust cases under the Clinton administration, said that Litvack's reputation was a good indication that the government meant business.

"If the department of justice really bring him in at this point to work on the Google-Yahoo matter, then it's a very ominous sign for the parties concerned," said Turetsky. "The department has brought outsiders in on other occasions and sometimes they've filed a suit and sometimes they have not."

However, with the investigation already running for several months and apparently considered a high status case – which has allowed investigators to issue subpoenas for evidence – Turetsky said he believed the chances of an eventual suit were high.

"In those cases where no charges have resulted, it's typically nearer to the beginning of an investigation," said Turetsky, who is now in private practice with Washington law firm Dewey & LeBoeuf. "I don't think they'd bring someone that senior in without the possibility of filing a suit."

Yahoo responded to news of the Brussels investigation much as it had the US inquiry, saying that it would cooperate fully with the demands of investigators. Google, meanwhile, brushed aside the news by saying that the terms of its deal would have no impact on the European advertising market.

"The agreement is limited in scope to Yahoo's US and Canadian websites, and it will not have any significant effect on Europe," said Google in a statement. "We are, of course, cooperating with the commission and are confident that they will reach the same conclusion."

The deal has drawn criticism from advertising groups and newspaper organisations, which argue that it hands an unfair amount of control over the online advertising market to a single company.

Among those complaining most vociferously about the Google-Yahoo matchup, however, is rival Microsoft - which sees the deal as a serious threat to its own plans. Not only does it further relegate prospects for Microsoft's own search advertising business, but the agreement between the two Californian companies was widely seen as an attempt by Yahoo to fend off Microsoft's aggressive $44bn takeover bid. That was eventually rejected by Yahoo's board in August, and Microsoft has been bitter in its criticism of the deal since then.

"Never before in the history of advertising has one company been in the position to control prices on up to 90% advertising in a single medium," said Brad Smith, general counsel at Microsoft, giving evidence to a congressional committee.

"Ultimately, the long-term ramifications of this deal would undermine the very diffusion of power the internet is supposed to promote."

Despite public statements in which it has said it will work with government lawyers, Google has taken an aggressive attitude towards the plan, saying that it plans to implement its scheme by October.

That may prove foolhardy, said Turetsky, who cautioned Google against angering the department of justice unnecessarily.

"Acting like this at the informal and cooperative stage is one thing," he said. "In a more formal investigation, announcing your own deadlines to the department is an unusual approach. One can understand the concerns about being left in limbo, but it sounds like the department is being challenged here."